Tax avoidance and evasion schemes Assignment Example | Topics and Well Written Essays - 1250 words

Tax avoidance and evasion schemes - Assignment Example The government has made tax evasion and avoidance one of its key priorities so as to reduce the deficit and boost the exchequer (Alan 2011). Tax evasion is illegal way of minimizing taxes thus stiff penalties are involved on individual or corporate bodies who evade taxes. Unintentional mathematical errors in tax returns are not considered to be tax evasion (McGee 2012). Tax avoidance is a legal way of minimizing tax liability, and it involves planning in advance an intended transaction so as to get a specific tax treatment. Individuals can minimize taxes through tax planning for example through schemes. Avoidance also involves disclosure. Tax avoidance and evasion schemes a) Defined contribution retirement plan Contributing money to a qualified employer sponsored retirement plan helps in reducing tax liability. A defined contribution retirement plan is an IRS approved retirement plan sponsored by an employer. Contributions made by the employees to these schemes are tax deductible, an d as a result, the tax payable is reduced. For example, if an employee who is in a tax bracket of 25% contributes 2000, he will save 500 (McGee 2012). Another benefit with defined contribution retirement plan is that the contributions made by the employee to the scheme are invested to a mutual fund. ... Such expenses include qualified parking, transit passes and van pool commuting. These savings made from the payroll are deductible for tax purposes thus tax payable is minimized (Alan 2011). c) Flexible spending account This account is also referred to as an expense reimbursement account designed for employees who pay for the child or parent care. FSA helps employees fund medical and dental expenses through salary deduction to out of pocket unreimbursed health care expenses limited by law to $2,500 annually and depended care up to a maximum of $5,000 annually (McGee 2012). Example includes prescriptions, over-the-counter drugs and annual deductibles. d) High income child benefit charge According to the Finance Act 2012 section 681B, a person is only legible to claim the high income child benefit charge if personal income for the year exceeds ?50,000 (Great Britain 2011). Also, when either a person or his partner are entitled to receive child benefit, or get contributions from someone else who claims Child Benefit for a child who lives with you..If you are liable to the tax charge and your income increases or drops, this can affect whether you continue to be liable or how much tax charge you have to pay. If your individual income drops to ?50,000 or less for a tax year you will not have to pay the tax charge (Karayan and Swenson 2007). e) Offshore business structures Investors make investments through non-resident companies especially ones with lower tax jurisdictions. Tax charged on rental receipts for overseas investments is 20% unlike 26% charged to residents. The tax is withheld by tenants or appointed agents from their rent. Alternatively, an approval from HMRC can be obtains for rents to be received at